What is my business valuation?
Pick a method and type the numbers it needs. The business valuation calculator estimates what your business is worth by a multiple of earnings or revenue, by its net assets, or by capitalizing its earnings with a growth rate.
- Business value
- $750,000.00
Your business is worth about $750,000.00 by this method.
Business value: $750,000.00. Your business is worth about $750,000.00 by this method.
The results are estimates for information only. They are not financial, tax, or legal advice. Check the numbers with your lender or a qualified professional before you decide. Terms of use
How to calculate
Estimates what a small business is worth by a multiple of earnings, a multiple of revenue, net assets, or capitalized earnings with a growth rate.
Example with the default inputs (Method Earnings multiple, Yearly earnings $250,000.00, Earnings multiple 3): Your business is worth about $750,000.00 by this method.
Method: Earnings multiple: value = earnings × multiple. Revenue multiple: value = revenue × multiple. Net assets: value = assets − liabilities. Capitalized earnings: value = earnings × (1 + g) ÷ (r − g).
- The multiples, discount rate and growth rate are yours to choose from sales of similar businesses; the calculator does not look them up.
- Capitalized earnings assume earnings grow at the same rate for ever and the discount rate is above the growth rate.
- An estimate for planning, not an appraisal: the IRS lists the asset-based, market and income approaches and expects an appraiser to weigh them.
Worked examples
Each example is checked against the calculator on every build.
- Method Earnings multiple, Yearly earnings $250,000.00, Earnings multiple 3 gives Business value $750,000.00.Source: IRS, Internal Revenue Manual 4.48.4 Business Valuation Guidelines (§4.48.4.2.3: the market approach, with multiples consistent with the benefit stream), https://www.irs.gov/irm/part4/irm_04-048-004
- Method Capitalized earnings, Yearly earnings $100,000.00, Discount rate 13%, Long-term growth rate 3% gives Business value $1,030,000.00, Next year’s earnings $103,000.00, Capitalization rate 10%, Implied earnings multiple 10.3.Source: OpenStax, Principles of Finance, §11.2 Dividend Discount Models (constant growth: value = D₀(1 + g) ÷ (r − g)), https://openstax.org/books/principles-finance/pages/11-2-dividend-discount-models-ddms
- Method Net assets, Total assets $900,000.00, Total liabilities $350,000.00 gives Business value $550,000.00.Source: IRS, Internal Revenue Manual 4.48.4 Business Valuation Guidelines (§4.48.4.2.3: the asset-based approach), https://www.irs.gov/irm/part4/irm_04-048-004
- Method Revenue multiple, Yearly revenue $1,250,000.00, Revenue multiple 0.65 gives Business value $812,500.00.Source: IRS, Internal Revenue Manual 4.48.4 Business Valuation Guidelines (§4.48.4.2.3: the market approach), https://www.irs.gov/irm/part4/irm_04-048-004
How it works
Pick one method:
- Earnings multiple (market approach): value = yearly earnings × earnings multiple.
- Revenue multiple (market approach): value = yearly revenue × revenue multiple.
- Net assets (asset-based approach): value = total assets − total liabilities. It can be negative when the business owes more than it owns.
- Capitalized earnings (income approach, the constant-growth model): next year’s earnings = earnings × (1 + g ÷ 100); capitalization rate = r − g; value = next year’s earnings ÷ ((r − g) ÷ 100); implied earnings multiple = value ÷ this year’s earnings (shown when earnings are not 0). Here r is the discount rate and g the growth rate, both in percent.
Rules. For capitalized earnings, the discount rate must be higher than the growth rate, and the value and the implied multiple must be small enough to show as numbers (below about 1.8 × 10³⁰⁸, which fails only when the two rates are extremely close); otherwise there is no answer and the page says so. Money amounts are from $0 to $1,000,000,000,000; multiples from 0 to 100; the discount rate from 0% to 100% and the growth rate from −50% to 50%.
Exact arithmetic. Every step is an exact fraction of the decimals you type (0.65 is exactly 65/100), rounded once for display.
Output format. Money shows in dollars and cents, rounded half up from its exact value. The capitalization rate shows as a percent and the implied multiple as a number, each with at most 2 decimals.
Assumptions
- You choose the multiples and rates from sales of similar businesses or an appraiser’s advice; the calculator does not look them up.
- Capitalized earnings assume steady growth for ever.
- This is an estimate for planning, not an appraisal.
Worked examples by hand
Earnings multiple: $250,000 of SDE × 3 = $750,000.
Capitalized earnings: $100,000 a year, 13% discount rate, 3% growth. Next year 100,000 × 1.03 = $103,000; cap rate 13 − 3 = 10%; value 103,000 ÷ 0.10 = $1,030,000, an implied multiple of 10.3.
Net assets: $900,000 − $350,000 = $550,000.
Revenue multiple: $1,250,000 × 0.65 = $812,500.
Other questions people ask
How do you value a small business?
The IRS’s business valuation guidelines name three generally accepted approaches: asset-based (what the business owns minus what it owes), market (multiples from sales of similar businesses), and income (the value of the earnings it will make). An appraiser usually tries more than one and weighs them.
What is an earnings multiple?
The price buyers pay per dollar of yearly earnings. With seller’s discretionary earnings (SDE) of $250,000 and a multiple of 3, the value is $750,000. The right multiple comes from sales of similar businesses in your industry and size.
What is the difference between SDE and EBITDA?
Both are yearly earnings before interest, taxes, depreciation and amortization. SDE also adds back one owner’s pay and perks, so it suits small owner-run businesses; EBITDA suits larger ones with paid managers. Use the multiple that matches the earnings you type.
How does capitalized earnings work?
It treats the business as a stream of earnings that grows at a steady rate for ever and finds today’s value of that stream: next year’s earnings ÷ (discount rate − growth rate). $100,000 growing 3% at a 13% discount rate is 103,000 ÷ 0.10 = $1,030,000.
Why must the discount rate be above the growth rate?
If earnings grow as fast as the return you ask for, or faster, the sum of the growing stream has no limit, and the formula gives no answer. Use a growth rate you expect to last for many years.
When is the net asset method used?
For businesses whose value is mostly in what they own, such as holding companies, or ones that earn little. Use fair market values for the assets, not the book values, where you can.